Financial Documents Flashcards
What is the purpose of a statement of comprehensive income?
To show a business’s revenue, costs, and profit over a period — used to measure financial performance.
What is sales revenue?
Income from selling goods or services.
Formula: Sales = Price × Quantity sold
What is cost of sales?
The direct costs of making or buying the goods sold (e.g. raw materials, stock).
What is gross profit?
Gross profit = Sales revenue − Cost of sales
What are expenses?
Operating costs such as wages, rent, and advertising (not directly linked to production).
What is operating profit?
Operating profit = Gross profit − Expenses
Why is profit important to a business?
Shows performance
Can be reinvested
Attracts investors
Needed to survive long-term
How can businesses use income statements to make decisions?
Identify high costs
Monitor profitability
Plan for growth or cost-cutting
Compare with past years or competitors
What is the purpose of a statement of financial position (balance sheet)?
To show what a business owns (assets), owes (liabilities), and how it is financed at a specific point in time.
What are current assets?
Assets likely to be used or turned into cash within one year (e.g. cash, stock, trade receivables).
What are non-current assets?
Assets used over a long period, e.g. buildings, vehicles, machinery.
What are current liabilities?
Debts due within one year, e.g. overdrafts, trade payables.
What are non-current liabilities?
Long-term debts, e.g. bank loans due after more than a year.
What is capital employed?
Capital employed = Non-current liabilities + Equity
(Shows total resources used by the business)
How can a business use the statement of financial position?
Assess liquidity (can it pay its debts?)
Understand financial strength
Compare assets and liabilities
Help with future planning
